What is UPI and How UPI Works?

UPI - Unified Payments Interface is a payment system application that allows for money transfer between bank accounts through mobile phones. All banking features are combined into a single-window mobile payment system that was created by the NPCI (National Payments Corporation of India). UPI enables a simplified transaction through the use of QR codes, UPI-registered mobile numbers or VPAs (Virtual Payment Addresses). The app's main aim is to eliminate the need to enter bank details and other account information each time there is a transaction. The transactions are protected by a PIN that ensures safe and secure transactions. The UPI interface is regulated by India's central bank, RBI (Reserve Bank of India).

Features of UPI

1: UPI is a unique payment system that allows online merchants and other users to transfer funds

2: UPI is a fast payment mechanism that allows financial transactions to be carried out 24/7, 365 days a year.

3: There is no fee or charge for making payments or requesting payments through UPI. UPI enables peer-to-peer transactions free of cost.

4: There is no minimum limit on the amount that can be transferred through UPI.

5: UPI has the option of autopay by NPCI for regular payment of utility bills.

6: There is a 2-factor authorization, which allows users to make single-click payments easily.

Zet App Download from PlayStore

How UPI Works

UPI has an effective framework for digital transactions. Below given are steps to understand how UPI works:

Step 1: Registration

Users have to download a UPI app which is compatible with the mobile phone. The user must enter the necessary details and create a VPA (Virtual Payment Address). This will serve as the user's UPI ID, which enables initiating transactions

Step 2: Initiation of transaction

Users can easily make or initiate payment by entering the recipient's number, scanning the QR code or the UPI ID, and entering the desired amount.

Step 3: Authenticating transactions

After initiating the transaction, the user must enter a UPI PIN to authenticate it. This authentication ensures that the transaction is secure and safe.

Step 4: Processing transactions

After entering the UPI PIN, the app server verifies the payment request with the bank and processes the payment.

Step 5: Confirmation

The user instantly receives the notification of the approval or rejection of payment, which confirms the transaction

Step 6: Settlement

UPI settles transactions between banks for the payment process. Settlements are done immediately between the receiver's and the payer's banks, usually within minutes.

UPI Transaction Limit and Charges

UPI has minimum to no charges or fees for making transactions, making it economical for users. The transaction limit for transferring funds through UPI is up to 1 lakh per transaction. The maximum number of transactions that can be made in a day is 20. However, these limitations will be different according to the bank and the UPI app.

UPI does not have transaction charges, but some banks, with certain policies, may have nominal charges for specific services, such as merchant transactions or recurring payments.

Benefits of UPI

For Merchants

1: Quick settlements: The fastest settlements are the most significant benefit for merchants using UPI. UPI enables quicker settlements that help in maintaining a seamless cash flow, which allows merchants to access funds promptly

2: Advanced security: UPI has a 2-factor authorization that adds an extra layer of protection during the transfer of funds and ensures that every transaction is safe to protect from unauthorized access or fraud

3: Enhances customer experience: UPI has improved the customer experience by making it easy and convenient to do financial activities, which leads to increased customer satisfaction

4: Easy digital transactions: UPI ensures merchants have an accessible customer base by eliminating traditional payment methods and adapting to the digital world.

5: Easy integration: UPI enables easy integration between online stores and applications, making it easy for merchants.

6: Less transaction cost: Compared to traditional payment methods, UPI has minimum to no fees or charges. This has reduced the transaction cost, making UPI the most efficient payment method for merchants.

For Customers

1: Easy to use: one of the greatest advantages of UPI for customers is the convenience and ease of use. The UPI has a user-friendly interface that simplifies the registration and payment process with basic account information and user details.

2: Enhanced security: Digital payment systems have always witnessed fraud or malpractice, but UPI has enhanced security with 2-factor authorization and biometric verification, which adds an extra layer of security for transactions.

3: Accessibility: UPI has enabled financial accessibility. Customers can make payments from anywhere at any time with an internet connection.

4: Flexibility in payment: UPI makes it convenient to make payments on online shopping apps or even in-store purchases.

5: Record keeping: UPI allows customers to track the transaction history of payments made through the UPI app.

Generating UPI PIN

UPI PIN is a 4 - 6 digit numerical code that is an added security measure for making transactions using UPI to prevent unauthorized access and fraud. Given below are the steps to generate a UPI PIN

Step 1: Download and open the UPI app on the mobile phone

Step 2: Select the bank account which is to be linked with UPI and search for the PIN generation option

Step 3: enter the necessary details asked, after which the user will receive an OTP on the registered mobile number for verification

Step 4: After the verification, the UPI PIN of the user's choice has to be entered and confirmed

The most important thing to remember while setting the UPI PIN is that it must not be easily guessable or contain any personal information or details of the user. The PIN must be easy to remember and kept strictly confidential.

How to Use UPI Payment?

Some essential requirements need to be considered to understand how UPI payment works and ensure secured transactions:

1: Ensure the mobile phone has a reliable operation system that can support UPI-enabled apps

2: Ensure a secured and active bank account with a bank that has a UPI service

3: Mobile number must be linked to the bank accounts which is to be used for verification There must be a stable internet connection to use UPI

Step 1: Select a UPI app

Choose a UPI app that is compatible with the smartphone.

Step 2: Registration

1: Download and install the selected UPI app

2: Open the app and register

3: Enter the user’s mobile number and link the bank account.

4: An OTP will be sent for verification, after which the user must set a 4 - 6 digit UPI PIN, which is required for every transaction.

Step 3: Create a VPA (Virtual Payment Address)

1: Open the app and go to UPI settings or profile section

2: Search the option for creating a VPA (Virtual Payment Address) and enter the desired username

3: Link the bank account to this VPA.

Step 4: Activate UPI transactions

1: Initiate payments by sending money to the recipient's mobile number or VPA

2: Enter the desired amount to be sent

3: Enter UPI PIN and confirm the transaction

Step 5: Receive Payments

1: Provide the VPA or mobile number linked to UPI to the sender

2: The sender will initiate the transaction

3: The money will be instantly sent to the receiver's bank account linked to UPI.

Step 6: More UPI Services

UPI is not only used for making or receiving payments; it is also used for more than that. UPI can be used to pay regular utility bills, check bank account balances, etc.

UPI Transaction Flow

UPI transaction flow consists of the steps involved in the payment process. This flow helps to understand how the process works, from the payment initiated by the sender (push) to the payment received by the recipient (pull).

PUSH: Streamlined Payment Initiation and Authorization.

Push transactions allow users to make payments directly from their accounts to the recipient's account with UPI. This process is usually used to make purchases, pay bills, or send money to people.

Phase 1: Initiate transaction and authorization

1: Transaction initiation

2: Request routing

3: NPCI verification

4: Bank verification

5: Authorization

Phase 2: Fund transfer and verification

1: Sharing details

2: Deduction of funds

3: Credits the recipient account

4: Confirmation of transaction

Read More:: Is a 750 Credit Score Good?

PULL: Controlled Payment Requests and Execution

Pull transactions occur when the recipient requests money from the sender. They are most commonly used to ask customers for payment or to bill payments.

Phase 1: Initiation of transaction

1: Recipient initiation

2: Payment message flow

Phase 2: Transaction flow among banks

1: Request routing

2: Debtor’s bank verification

3: Approval of transaction

4: Completion of transaction

Read More:: Credit Score Vs CIBIL Score

Participants in UPI

Payer/Payment Service Provider (PSP)

The payer app, which is the UPI app, allows initiation of transaction by entering recipient details and the desired amount

National Payments Corporation of India (NPCI)

NPCI governs the UPI to ensure the security and validity of transactions between banks

Issuing Bank

The sender's bank checks the details and verifies the transaction request to authorize the payment process

Acquiring Bank

The receiver’s bank will process the transaction and will get the credited amount in the account

Payee PSP

The payee’s app will receive confirmation that the funds have been transferred.

UPI Security Measures

1: Interbank transfer: transfer of funds can be instantly done between banks. Immediate credit and debit of the amount is reflected in the accounts

2: 2 Factor Authorization: The 2FA system ensures security during the transfer of funds. Users have to enter a unique PIN called MPIN (Mobile Personal Identification Number) to authenticate payments. This measure reduces the chances of any fraud or unauthorized access to bank account details.

3: Data protection: UPI uses advanced encryption technologies to protect sensitive information. The user's information is confidential and secured during transmission, eliminating any risk of breach.

4: Payment system integration: UPI uses established digital payment frameworks like NEFT (National Electronic Fund Transfer), RTGS (Real-Time Gross Settlement), etc., for settlements. These systems will ensure a secure and smooth transfer of funds between banks

5: Diversified Payments: UPI supports OTC (over-the-counter) payments by scanning QR codes or using VPAs (Virtual Payment Addresses). It has also simplified the process of recurring utility payments by providing a convenient platform for financial activities.

Read More:: RBI Guidelines for Credit Cards

Conclusion

The above-mentioned information has all the details on what UPI is and how it works, along with all the other relevant information to understand how UPI payment works. UPI has transformed the world of digital transactions and simplified the payment process. UPI's user- friendly interface, unique features and enhanced security measures have made digital transactions convenient and play a massive role in promoting a cashless economy. UPI transactions are now considered the most secure digital payment method because of its robust safety protocols and multi-layered encryption established and monitored by the RBI (Reserve Bank of India), which safeguards all digital transactions from fraud or unauthorized access.

FAQs

How to set UPI PIN?

A UPI PIN is a 4 - 6 digit code that is a secured authentication code for UPI transactions. This unique Personal Identification Number authorizes transactions and adds an extra layer of security for all banking activities through the UPI app.

What is the limit to transfer funds through UPI?

The transaction limit is up to 2 lakhs for some particular categories of transactions, like capital market, insurance, etc., but it is up to 1 lakh for normal transactions.

Do transactions through UPI happen only during banking hours?

Transactions through UPI can be done 24/7 irrespective of the working hours of the bank.

How to transfer money to online merchants through UPI?

Online shopping apps offer the option of paying through UPI. After selecting that option, the customer's payment address must be entered. Then, the customer will be directed to the BHIM app, where they will receive a request for payment. After entering the UPI PIN, the payment will be completed.

Is it possible to link multiple bank accounts to the same virtual payment address?

Yes. More than one bank account can be linked to the same virtual address.